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File Bankruptcy Now, Before New Bankruptcy Legislation Enacted
Staff writer, Suellyn McMillan
May 17, 2001
Your debts are soaring out of control. You’ve tried every alternative—credit counseling, debt consolidation, borrowing from your relatives—but the interest rates on your loans and credit cards exceed the minimum payment, and the debt grows with the speed of a weed in your garden. Filing bankruptcy looks like the only way out. If so, you had better do it now, before the new bankruptcy legislation is passed by Congress and signed into law by President Bush.
The bankruptcy “reform” bill, now pending in the House and Senate, is heavily backed by the banking industry and favored by President Bush. It stands to increase the cost of bankruptcy, both to debtors and taxpayers, and manipulates the system in favor of credit card companies, seriously impairing the function of Chapter 13. The bill also appears to make identity theft far easier than ever before.
It applies new standards for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan, under Chapter 13 of the Bankruptcy Code, rather than having their unsecured debt dissolved under Chapter 7 of the code. (See Q & A about Bankruptcy Legislation and further explanation of both Chapter 7 and 13 on this site.)
The bills are a blatant attempt to make bankruptcy relief less comprehensive and available to far fewer individual debtors.
Already passed by both the House and the Senate, the bills are not the same. They will have to be reconciled before a vote on the joint bill. The most hotly debated variance in the bills is probably the differing treatment of homestead exemptions in states that allow a debtor to keep a home of any value despite bankruptcy. Reforms want to limit the exemption and those from unlimited exemption states, including President Bush, favor this loophole.
Some debtors are apparently aware of the threat posed by enactment of the new bill. Federal court officials in Arizona reported that bankruptcy filings in the state surged to a record in March 2001, suggesting a rush to erase debts before the sweeping reforms that could force more people to pay their creditors are enacted. Chapter 7 cases, which allow a petitioner
to wipe out all debts, climbed 30 percent in March.
Moody’s Investors Service recently reported consumer credit quality worsened as measured by the credit performance in pools of U.S. bank credit card loans in the first quarter of 2001. As a result of these indicators, the credit industry is promoting the idea that those facing bankruptcy are evading responsibilities to their creditors and taking the easy way out.
See more on Moody’s report on this site.
Although the bankruptcy bill is bogged down in Congress because of the different versions of the bankruptcy bills, once the issues are resolved, the proposed changes will become effective six months from enactment (signature by the president.) Cases filed between now and then are governed by the existing law.
Update: July 17, 2001
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Bankruptcy Is On Track
WASHINGTON, D.C.- The Senate used a procedural trick last Thursday to get the stalled bankruptcy reform bill moving again in hopes of pushing the credit union-backed measure to final passage.
The Democratic leadership hopes to circumvent the bill's main opponent Paul Wellstone of Minnesota in his attempt to block the measure by obtaining 60 votes on a motion to proceed. That would allow them to debate the bill all over again that the same body passed in March, opening the measure to major changes.
NAFCU lobbyist Murray Chanow told The Journal he is still hopeful the bill will pass the Senate overwhelmingly, as it did in March, in order for it to be reconciled with a separate version passed by the House.
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Document last modified Wednesday, 12-May-2004 19:08:40 EDT
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